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TEXAS PRINCIPLES 1 EXAM PRACTICE QUESTIONS
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A farmer temporarily installs produce coolers in a leased farm stand in order to prevent spoilage. The coolers would be considered which of the following? a) Trade fixtures that are real property. b) Trade fixtures that are personal property. c) Temporary real property. d) Emblements. - ANSWER b) Trade fixtures that are personal property. Property can be converted from real to personal property and from personal property to real property by means of which processes respectively? a) Assemblage and plottage. b) Application and dissolution. c) Severance and affixing. d) Planting and harvesting. - ANSWER c) Severance and affixing. The highest form of ownership interest one can acquire in real estate is the: a) legal life estate. b) Conventional life estate. c) Defeasible fee simple estate. d) Absolute fee simple estate. - ANSWER d) Absolute fee simple estate.
The distinguishing feature of a defeasible fee simple estate is that: a) It could be passed onto heirs. b) It has no restrictions on use. c) The estate may revert to a grantor or heirs if the prescribed use changes. d) It is of unlimited duration. - ANSWER c) The estate may revert to a grantor or heirs if the prescribed use changes. Maria acquires a property from her uncle Alfonso. When Maria dies the estate will pass to Alfonso's other niece Serena. The type of estate that Maria has in the property is: a) conventional life estate. b) Legal life estate. c) Fee simple defeasible estate. d) Tenancy by the entirety's. - ANSWER a) conventional life estate. One difference between a cooperative estate and a condominium estate is that: a) a condominium owner owns a unit of air space whereas the co-op owner owns a proprietary lease. b) A condominium sale adversely affects other unit owners. c) The co-op owner owns stock and a freehold real estate interest whereas the condominium owner simply a proprietary lease. d) The condominium owner owns the common elements and the air space whereas the co-op owner only owns the apartment. - ANSWER a) a condominium owner owns a unit of air space whereas the co- op owner owns a proprietary lease. Who are the essential parties involved in an estate and trust? a) Owner trustor, and lawyer.
A property owner has an easement appurtenant on her property. One day the property is sold to another party who is opposed to the easement. Following the closing, this particular form of easement: a) terminates. b) Transfers with the property. c) Transfers with the owner to a new property. d) Becomes a license on the property. - ANSWER b) Transfers with the property. What fundamental legal purpose is fulfilled by title records? a) Keeping the county apprised of tax payments. b) Preventing identity theft. c) Giving constructive notice of one's rights and interests in the property. d) Assembling all relevant documents in a single place. - ANSWER c) Giving constructive notice of one's rights and interests in the property. What is chain of title? a) The list of all parties who have ever owned real estate. b) The bundle of rights linked to the recorded title to a parcel. c) A chronology of successive owners of record of a parcel of real estate. d) Involuntary conveyance of title by statutory roles of descent. - ANSWER c) A chronology of successive owners of record of a parcel of real estate. Which of the following provides the strongest evidence of marketable title? a) A general warranty deed. b) A title certificate. c) Title insurance. d) An attorney's opinion. - ANSWER c) Title insurance.
A store owner enters into a lease that charges rent per square foot, a common area fee, and a portion of the store owner's gross income from the property. This kind of lease is a: a) triple charge, or triple net lease. b) Proprietor's lease. c) Percentage lease. d) Retailer's gross lease. - ANSWER c) Percentage lease. An owner lease has a property to a business in exchange for rent and the tenant is required to pay all operating expenses as well. This is an example of a _______. a) Proprietary lease. b) Percentage lease. c) Gross lease. d) Net lease. - ANSWER d) Net lease. A lease automatically terminates under which of the following circumstances? a) The tenant fails to pay rent. b) The leased property is foreclosed. c) The tenant goes out of business. d) The landlord canceled the lease. - ANSWER b) The leased property is foreclosed. A county or municipal authority usually grants a certificate of occupancy for new construction only after: a) all contractor's work has been inspected. b) All work has been completed for at least 60 days. c) The construction conforms to building codes.
Which of the following characterizes a metes and bounds description? a) They use meridians and baselines. b) They identify an enclosed area, beginning and ending at the same point. c) They use lot and block numbers. d) They incorporate elevation into the descriptions. - ANSWER b) They identify an enclosed area, beginning and ending at the same point. A buyer agrees to all terms of a seller's offer except the length of time for a contingency to procure financing. The buyer extends the financing period in the offer by one week, signs the form, and mails it back to the seller. At this point, the seller's offer: a) is void. b) Becomes an executory contract. c) Becomes a counteroffer. d) Has been accepted, since the modification was a contingency. - ANSWER a) is void. Real estate contracts that are not personal service contracts: a) May be assigned. b) Are not assignable. c) Must be in writing. d) Are exempt from the statute of frauds. - ANSWER a) May be assigned. Which of the following contracts must be in writing to be enforceable? a) A parol contract. b) A six month lease. c) A two year lease. d) An executory contract. - ANSWER c) A two year lease.
Agent Bob who works for Broker Bill obtains an owner listing to lease a building. Bill's other agent, Sue, locates a tenant for Bob's listing. Broker Bill in this instance is: a) An employed agent. b) A dual agent. c) A single agent. d) A sub agent. - ANSWER b) A dual agent. A transaction broker should disclose his or her agency relationship to prospective buyers and sellers: a) Upon first substantive communication. b) Upon completion of the listing agreement. c) Immediately following completion of any offer. d) Immediately prior to closing. - ANSWER a) Upon first substantive communication. A transaction facilitator in a residential transaction represents: a) The seller. b) The buyer. c) Both seller and buyer. d) Neither seller nor buyer. - ANSWER d) Neither seller nor buyer. A principal instructs an agent to inform minority buyers that the property for lease was just leased an hour ago and is no longer available. The agent refuses to comply. In this case: a) The agent should not exercise caution until the listing expires, then decline to renew it. b) The principal has proposed an illegal act, which the agent should not obey. c) The agent is liable for breaching the listing terms.
a) A broker may only place blind ads in social media outlets. b) A broker must have all advertising approved by the local real estate board. c) The advertising must not be deceptive. d) Sales agents may only advertise in their own name. - ANSWER c) The advertising must not be deceptive. The three principal brokerage firms in a market agree to pay sales agents 15% more than any other competitor currently in practice. This is an example of a) Collusion. b) Price-fixing. c) Allocation of markets. d) Steering. - ANSWER a) Collusion. Two leading agencies jointly agreed to raise commissions charge to residential sellers to 7.5% of the sales price. Which of the following is true? a) This is a perfectly legitimate business practice. b) The brokers have illegally fixed prices. c) The brokers have allocated markets. d) The brokers have engaged in legal collusion. - ANSWER b) The brokers have illegally fixed prices. A sale contract contains an open-ended financing contingency: if the buyer cannot obtain financing within a reasonable time the deal is off. Six months later the buyer still cannot secure financing. Which of the following is true? a) The seller may cancel the contract since it can be ruled invalid. b) The buyer can continue indefinitely to seek financing, and the seller's property must remain off the market since "reasonable" is not defined. c) The escrow agent is entitled to the buyer's deposit.
d) The seller can force a lender to commit to a loan under fair financing laws. - ANSWER a) The seller may cancel the contract since it can be ruled invalid. In the event of a buyer's default a provision for liquidated damages in a sale contract enables the seller to: a) sue the buyer for a person specific performance. b) Force the buyer to quitclaim equitable title. c) Sue the buyer for the broker's marketing expenses. d) Claim the deposit as compensatory damages for the buyer's failure to perform. - ANSWER d) Claim the deposit as compensatory damages for the buyer's failure to perform. Which of the following is true of an option to buy agreement? a) The potential buyer, the optionee, is obligated to buy the property once the option agreement is completed. b) The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so. c) The contract can be executed at no cost to the optionee. d) It is a bilateral agreement. - ANSWER b) The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so. If a manufacturer that is the major employer in a small city moves its operations to another city, it is reasonable to expect: a) a fall in housing demand, but no other changes in the real estate market. b) A decline in demand for all types of real estate in the real estate market. c) An immediate fall in the demand for industrial real estate, but no other changes in the real estate market. d) An immediate decline in the prices for industrial and office real estate, but no impact on the residential market. - ANSWER b) A decline in demand for all types of real estate in the real estate market.
In the income capitalization approach, an appraiser a) Estimates gross income and multiplies times the gross income multiplier. b) Estimates effective of income, subtracts tax, and applies a capitalization rate. c) Estimates net income and applies the capitalization rate to it. d) Estimates potential income and applies a capitalization rate to it. - ANSWER c) Estimates net income and applies the capitalization rate to it. Net operating income is equal to a) Potential income minus expenses minus debt service. b) Effective gross income minus potential income. c) Potential gross income minus vacancy and credit loss minus expenses. Effective gross income minus vacancy and credit loss. - ANSWER c) Potential gross income minus vacancy and credit loss minus expenses. If net income on a property is $40,000 and the cap rate is 10%, the value of the property using the income capitalization method is a) $100,000. b) $400,000. c) $1 million. d) $4 million. - ANSWER b) $400,000. The key feature of an adjustable-rate mortgage loan is that a) The interest rate may vary. b) The monthly payment increases over the life of the loan. c) The principal balance does not amortize.
d) The loan term can be shortened or lengthened. - ANSWER a) The interest rate may vary. Why is a wraparound mortgage loan potentially interesting to a home seller as an investment? a) It is a senior loan that can be easily subordinated for additional debt. b) A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage. c) The underlying loan is retired early. d) The second mortgage borrower may make payments directly to the first mortgage lender. - ANSWER b) A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage. A builder is required to secure a loan with mortgages on three properties. This is an example of a) A participation mortgage loan. b) A blanket mortgage loan. c) A permanent mortgage loan. d) A bridge loan. - ANSWER b) A blanket mortgage loan. Which of the following is true of a loan with negative amortization? a) The interest rate on the loan increases as the principal balance decreases. b) Payments are not sufficient to retire the loan. c) The loan balance is diminishing or going negative. d) Additional interest as being added to the monthly payment. - ANSWER b) Payments are not sufficient to retire the loan. A loan to value ratio is used as an underwriting mechanism because a) The LTV determines the profitability of the loan.
The method for deriving an investor's return on investment, or ROI, is by a) Dividing net operating income by cash flow. b) Multiplying the required yield times after-tax cash flow. c) Dividing net income by the price paid for the property. d) Multiplying cash flow times the price paid for the property. - ANSWER c) Dividing net income by the price paid for the property. Which of the following items would affect a homeowner's adjusted basis? a) Installing a higher capacity air conditioning and purifying system. b) Replacing a washing machine. c) Stripping and staining hardwood floors. d) Replacing a broken picture window. - ANSWER a) Installing a higher capacity air conditioning and purifying system. Which of the following is true with respect to real property taxation by the federal government? a) It imposes ad valorem property taxes and capital gain tax. b) It may not impose property taxes or tax liens. c) There are no federal ad valorem taxes on real property. d) It imposes ad valorem tax but not capital gain tax. - ANSWER c) There are no federal ad valorem taxes on real property. Ad valorem taxes are based on a) The replacement value of property. b) The assessed value of property. c) The millage value of property. d) The broker's estimate of value. - ANSWER b) The assessed value of property.
A retirement facility prohibits ownership of any unit by persons under 55 years of age. The association claims it has made the prohibition properly. Which of the following is true? a) They are violating the Civil Rights Act of 1866. b) They are violating the Fair Housing Amendments Act of 1988. c) They are guilty of age discrimination. d) The prohibition maybe legal if performed correctly. - ANSWER d) The prohibition maybe legal if performed correctly. An agent received a full price offer from a minority party. The agent presents the offer to the seller and discloses the buyer's minority status. The seller at that point instructs the agent to inform the buyer that the property has just gone under contract. The agent duly complies telling the offeror that the home has just been temporarily removed from the market and is unavailable, but may be available soon as the contract falls through. Which party or parties, if any, have violated fair housing laws? a) The agent only. b) The owner only. c) The agent and the owner. d) Neither agent nor owner. - ANSWER c) The agent and the owner. Which of the following are examples of closing items not prorated between buyer and seller? a) Taxes. b) Inspection fees. c) Utilities. d) Condominium assessments. - ANSWER b) Inspection fees. Which of the following activities is not allowed under the Real Estate Settlement and Procedures Act?
For the proper handling of client and owner monies, a property manager is generally required to a) Deposit all funds every month in the management firm's central operating account. b) Employ a notary to witness and record every deposit or payment received. c) Maintain a special trust account and a qualified financial depository. d) Disperse all funds to their legal owners on a weekly basis. - ANSWER c) Maintain a special trust account and a qualified financial depository. Jennifer advised her clients that they needed to paint their living room before showing the property. The walls of these rooms were all 8 feet high. The wall lengths were 14 feet, 18 feet, 16 feet, and 18 feet. If a gallon of paint covers 200 ft.², how many whole gallons would the home sellers have to buy? a) One. b) Two. c) Three. d) Six. - ANSWER c) Three. An investor just purchased a rectangular 2 acre lot for $250 a frontage foot. If she paid $100,000 total what was the depth of the lot? a) 400 feet. b) 250 feet. c) 871 feet. d) 218 feet. - ANSWER d) 218 feet. Andra can afford to spend $5000 in closing cost to refinance her home. The lender quotes closing costs of $800 +2 points. The house appraised out at $240,000 and she can get an 80% loan. Can Andra afford to refinance? a) No she is short by $64.
b) No she is short by $1600. c) Yes with $360 left over. d) Yes she in fact breaks even. - ANSWER c) Yes with $360 left over. A lender offers an investor a maximum of 70% LTV loan on the appraised value of a property. If the investor pays $230,000 for the property, and this is 15% more than the appraised value, how much will the investor have to pay as a down payment? a) $93,150. b) $79,350. c) $90,000. d) $69,000. - ANSWER c) $90,000. A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 2 ½ bathrooms, and no patio. The comparable house just sold for $100,000. A half bath is valued at $ and a patio at $1000. Assuming all else is equal what is the adjusted value of the comparable? a) $100,000. b) $104,000. c) $96,000. d) $106,000. - ANSWER c) $96,000. A family purchased a $90,000 lot to build a custom home. At the date of closing the lot was assessed at $84,550 and the tax rate was $1.91 per $100 assessed valuation. When they completed the home, the assessment increased by $235,000 to include the new construction. If the monthly tax escrow is based on the assessed value, what will the monthly tax escrow be? a) $ b) $ c) $ d) $367 - ANSWER c) $
